Are we going to forget what we just learned?
Paul Krugman published an op-ed yesterday about exec salaries.
The very sad conclusion he comes to is that because the financial markets seem to be on an improving trajectory (although it is hard to know if this reflects a real improvements in the economy yet) the push to reform the banks could die off. As Krugman puts it: “In 2008, overpaid bankers taking big risks with other people’s money
brought the world economy to its knees. The last thing we need is to
give them a chance to do it all over again.”
We are now in a unique point in time where we just realized the mess we got ourselves into by assuming that the markets will be perfectly rational — and I sure hope we are not going to forget this painful lesson just because the market seem to be slightly higher these days. In fact, I suspect that what we need to do is take this lesson to heart and expand our search for other markets that are just waiting for similar disasters (and the health market looks to me to be heading is similar direction..)
The Upside of Irrationality, explores some positive and some negative ways that irrationality plays out in our lives.
i also found the krugman article to be excellent and very infuriating. if the highly paid executives leave and the institutions shrink in size it is only for the best. the size and complexity of the banking institutions clouded sound judgement.
I rarely agree with Krugman and this will be no exception. To blame bankers for the current situation is to fail to recognize the true villians. I am no fan of bankers, but I realize that when they are threatened by the federal government they will respond.
Frank, Dodd and their ilk pressed the bankers to lend to people who had little or no knowledge of what it takes not only to buy a house but to maintain it.
If we wish to solve our current problem(s) let people fail, then let the market find the level at which property can be sold at a price that is good for the buyer and the seller. It’s not rocket science
Reforms won’t happen it didn’t in the late 80′s early 90′s and won’t now. The bankers will earn the same and spend less conspicuously.
I’m not entirely convinced by all the of phenomena Dan Identifies (might be cultural differences?), but Market Norms, Relativity, the tendency to cheat when money is one step removed (financial instruments). Umm it was the recipe for the perfect storm.
I believe that if we made a few “examples” of anyone hyper greedy, it would serve as a lesson for all others in their various fields.